The speculative rush to build ultra-deepwater drillships is likely to slow down in the short-term market, but in the long run, drillship orders would go on steadily.
The fast pace of ultra-deepwater drillship orders has been flagged by some offshore shipowners as positive evidence of coming activity for high-spec support vessels but an unwanted newbuilding bubble of drillships could also point to trouble for that market.
The Jefferies & Co analysts recently visited South Korea to gauge the sentiment of senior management at Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries.
“After the surge in drillship orders that was largely stimulated by attractive pricing and financing terms by the three major Korean yards, demand for new orders appears likely to moderate near term as most major contractors now have multiple projects in process and few others appear to be in a rush to build on spec for a 2014 delivery,” wrote the analysts in their key takeaways from the yard trip.
“Factoring in a likely order for two drillships by Rowan and the exercise of most options currently outstanding, Hyundai and Daewoo indicated they are basically full for 2013 deliveries, while Samsung indicated that they still have two to three slots available for 2013 delivery.”
The analysts say poor tanker and boxship markets have spurred Hyundai to move on the UDW sector for drillships, serving to increase capacity, but its aggressive pricing has also cut the pricing power of Samsung and Daewoo.
The risk of a glut of orders looks more likely in 2014 and beyond.
“Essentially, we believe that current construction prices, estimated to now be approximately $640m, combined with current day-rate levels could produce a steady pace of new orders over a longer time period,” wrote the analysts.